Article by Vishal Bhat, Associate1

Introduction

The docket of the Supreme Court has been growing larger and
larger by the year and this has been affecting its quality and
efficacity in the delivery of justice. It has time and again been
articulated by a number of jurists in this country that the Supreme
Court should curtail its wide jurisdiction and confine itself to a
set of core issues. In several cases before the Apex Court, it has
often been observed that the area of controversy is limited, law
well settled and does not require attention of the Apex Court of
this country to decide such matter. Yet, it has time and again been
noticed that the Apex Court adjudicates on the issue and delivers
judgments that run into several pages where no great proposition of
law requiring the attention of the Supreme Court is laid down.

One such area of concern is the field of Arbitration which is
now a growing and fertile field of litigation for lawyers. The
Arbitration and Conciliation Act of 1996 was the result of
recommendations for reform,2 particularly in the matter
of speeding up the arbitration process3 and reducing
intervention by the court and reducing litigation in the
country.4 The 1996 Act is also no different from the
1940 Act. Even 14 years after its enactment, we find every year
that there are no less than a 100 cases of the Supreme Court
reported on arbitration and especially appointment of Arbitrator
under Sec. 11 (4) , (5) & (6) of the Arbitration Act,
1996.5 This has been adding to the existing burden of
the Court and in spite of that, a large number of appeals are filed
in the Supreme Court.

Appointment of Arbitrator by Chief Justice

The Parties to an arbitration are free to agree on the procedure
for appointing of arbitrators.6 The situations suitable
for intervention of the Chief Justice or his designate naming an
arbitrator are:

The procedure agreed is not followed;

There is no agreement on procedure.

In both situations, the intervention of the Chief Justice or his
designate7 are necessary. Under the first situation, if
a party fails to act under such procedure, or the parties (or the
two arbitrators, one appointed by each party) are unable to reach
an agreement expected of them under such procedure, or a third
party (including an institution) fails to perform any function
entrusted to it under such procedure, any part may request the
Chief Justice or his designate to take necessary measure, unless
such other measure have been provided in the agreement for securing
such appointment.8

Contentious Issues under Chief Justice's Powers

In a petition moved under Section 11 of the 1996 Act, the
Supreme Court has in a catena of cases held that the broad issues
which can be decided by the Chief Justice are as
follows9

Territorial Jurisdiction;10

Existence of an Arbitration Agreement;11

Appointment of an Arbitrator;12

Subsistence of an Arbitrable Dispute;13

Appointment of an Arbitrator: Administrative or
Judicial

Section 11 provides for the procedure of appointment of
Arbitrator by the Chief Justice. S. 11 (7) of the 1996 Act provides
that 'a decision on a matter entrusted by ss. (4) or ss.(5)
or ss.(6) to the Chief Justice or the person or institution by him
is final.' This led to a number of disputes regarding the
nature of the order passed by the Chief Justice on appointment of
Arbitrators and whether the same was judicial or administrative in
nature?

(i) Initial Interpretation: Order is
Administrative

Amongst some of the earliest interpretations of the provision of
S.11(7) was the case of Sundaram Finance Ltd v. NEPC India
Ltd.14 In this case it was held "Under the
1996 Act appointment of arbitrator/s is made as per the provision
of Section 11 which does not require the Court to pass a
judicial order appointing arbitrator/s." This
decision was reiterated in the case of Ador Samia Private Ltd
v. Peekav Holdings Limited,15 where it was held by
the Hon'ble Supreme Court that "It is now well settled
that petition under Article 136 can lie for challenging a
judgment, decree, determination, sentence or order in any cause of
matter passed or made by any court or tribunal in the territory of
India. As the learned Chief Justice or his designate under
Section 11(6) of the Act acts in administrative capacity
as held by this Court in the aforesaid decision it is obvious that
this order is not passed by any court exercising any judicial
function nor it is a tribunal having trappings of a judicial
authority... In view of this settled legal position therefore,
there is no escape from the conclusion that orders passed by the
learned Chief Justice under Section 11(6) of the Act
being of an administrative nature cannot be
subjected to any challenge directly under Article 136 of
the Constitution of India."

(ii) Doubting Thomas

This view of the Supreme Court in Ador
Samia16 was referred by a two judge bench of the
Supreme Court referred for re-consideration by a larger bench. The
decision of the bench of three judges in Konkan Railway
Corporation Ltd & Ors v. Mehul Construction
Co.,17 affirmed the view taken in Ador
Samia,18 namely, that the order of the Chief
Justice or his designate in exercise of the power under S.11 of the
Act was an administrative order and that such an order was not
amenable to the Jurisdiction of the Supreme Court under Article
136. The effect of this judgment was that the decision of the Chief
Justice being an administrative order was now amenable to the Writ
Jurisdiction under Article 226 of the Constitution and hence, as
one may say "The High Courts were flooded with Writ
Petitions challenging the appointment of the
Arbitrators."

Thereafter, in Konkan Railway Corporation Ltd Anr v. Rani
Construction Pvt. Ltd.,19 a bench of two learned
judges of the Supreme Court referred to a larger bench the decision
of the three judge bench for re-consideration, which was taken up
for hearing in the case of by a bench of five judges in the case
Konkan Railway Corporation Ltd Anr v. Rani Construction Pvt.
Ltd.20 The issue before the Court may be summed up
in the following words of the referral order "It appears
that the Chief Justice or his nominee, acting under Section 11 of
the Arbitration and Conciliation Act, 1996, have decided
contentious issues arising between the parties to an alleged
arbitration agreement and the question that we are called upon to
decide is whether such an order deciding issues is a judicial or an
administrative order?"

The Hon'ble Supreme Court after examining the intricacies
involved and after careful examination of the case laws held that
"In conclusion, we hold that the order of the Chief
Justice or his designate under Section 11 nominating an arbitrator
us not an adjudicatory order and the Chief Justice or his designate
is not a tribunal. Such an order cannot properly be made the
subject of a petition for special leave to appeal under Article
136. The decision of the three Judge Bench in Konkan Railway
Corporation & Ors v. Mehul Construction Co. is
affirmed."21

(iii) Final Position

This decision of the Supreme Court was again challenged in
challenged in the case of S.B.P. & Co v. Patel Engineering
& Anr.,22 where the question before the
Hon'ble Supreme Court was the nature of the function of the
Chief Justice or his designate under S. 11 of the Arbitration and
Conciliation Act, 1996. The main issues which were examined in this
case are:

What is the nature of the function of the Chief Justice or his
designate under S. 11 (6) of the Arbitration and Conciliation Act,
1996?

What is the scope and power of the Chief Justice under S.
11?

The Hon'ble Supreme Court examined the aforementioned issues
in detail and held that the power exercised by the Chief Justice or
his designate under S. 11 of the Act is a judicial power and not an
administrative power. The ratio decidendi of the
aforementioned case is reproduced for ready reference:

The power exercised by the Chief Justice of the High Court or
the Chief Justice of India under S. 11(6) of the Act is not an
administrative power. It is a judicial power.

The power under S. 11(6) of the Act, in its entirety, could be
delegated, by the Chief Justice of the High Court only to another
judge of that court and by the Chief Justice of India to another
judge of the Supreme Court.

In case of designation of a judge of the High Court or of the
Supreme Court, the power that is exercised by the designated, judge
would be that of the Chief Justice as conferred by the
statute.

The Chief Justice or the designated judge will have the right
to decide the preliminary aspects as indicated in the earlier part
of this judgment. These will be, his own jurisdiction, to entertain
the request, the existence of a valid arbitration agreement, the
existence or otherwise of a live claim, the existence of the
condition for the exercise of his power and on the qualifications
of the arbitrator or arbitrators. The Chief Justice or the judge
designated would be entitled to seek the opinion of an institution
in the matter of nominating an arbitrator qualified in terms of S.
11(8) of the Act if the need arises but the order appointing the
arbitrator could only be that of the Chief Justice or the judge
designate.

Designation of a district judge as the authority under S. 11(6)
of the Act by the Chief Justice of the High Court is not warranted
on the scheme of the Act.

Once the matter reaches the arbitral tribunal or the sole
arbitrator, the High Court would not interfere with orders passed
by the arbitrator or the arbitral tribunal during the course of the
arbitration proceedings and the parties could approach the court
only in terms of Section 37 of the Act or in terms of S. 34 of the
Act.

Since an order passed by the Chief Justice of the High Court or
by the designated judge of that court is a judicial order, an
appeal will lie against that order only under Article 136 of the Constitution of India to the
Supreme Court.

There can be no appeal against an order of the Chief Justice of
India or a judge of the Supreme Court designated by him while
entertaining an application under S. 11(6) of the Act.

In a case where an arbitral tribunal has been constituted by
the parties without having recourse to S. 11(6) of the Act, the
arbitral tribunal will have the jurisdiction to decide all matters
as contemplated by S. 16 of the Act.

Since all were guided by the decision of this Court
in Konkan Railway Corporation Ltd. and Anr. v. Rani
Construction Pvt. Ltd23 and orders under S. 11(6)
of the Act have been made based on the position adopted in that
decision, we clarify that appointments of arbitrators or arbitral
tribunals thus far made, are to be treated as valid, all objections
being left to be decided under S. 16 of the Act. As and from this
date, the position as adopted in this judgment will govern even
pending applications under Section 11(6) of the Act.

Where District Judges had been designated by the Chief Justice
of the High Court under S. 11(6) of the Act, the appointment orders
thus far made by them will be treated as valid; but applications if
any pending before them as on this date will stand transferred, to
be dealt with by the Chief Justice of the concerned High Court or a
Judge of that court designated by the Chief Justice.

Effect of judgment in S.B.P. & Co v. Patel Engineering
& Anr. (SBP)

One of the most important effects of the judgment was the
prospective ruling direction, which provided that any appointment
of an arbitrator under S. 11 made prior to 26.10.2005 had to be
treated as valid and objections including the existence or validity
of the arbitration agreement, have be decided by the arbitrator
under S.16 of the Act. The legal position enunciated by SBP would
govern only application to be filed under S.11 of the Act from
26.10.2005 as also applications under S.11 (6) of the Act pending
as on 26.10.2005 where arbitrator was not appointed. The decision
of the Hon'ble Supreme Court was reiterated in the case of
Maharishi Dayanand University v. Anand Coop. L/C Society Ltd
& Anr.,25 wherein it was observed by the Court
that if an appointment of an arbitrator has been made before
26.10.2005, that appointment has to be treated as valid even if it
challenged before this Court.

The next issue which has been raised in many an appeal i.e. who
should decide whether there is an arbitration agreement or not.
Should it be decided by the Chief Justice or his designate before
making an appointment of arbitrator under S.11 or the arbitrator
who is appointed under S.11 of the Act? This issue is no longer
res-integra. Ever since the decision in SBP., it is
recognised law, that any question on whether there is an
arbitration agreement or not, or whether the party who has applied
under S.11 of the Act, is a party to such an agreement, is an issue
which has to be decided by the Chief Justice or his designate under
S.11 before making appointment of arbitrator.26

Conclusion

The decision of the Supreme Court in SBP was a watershed moment
in the history of the Arbitration Act in India. The decision in SBP
has gone a long way in clearing many a legal hurdle in appointment
of arbitrators under the Act. It has clearly laid down the law
applicable to the exercise of powers by the Chief Justice or his
designate under S. 11 of the Act.

The aim of this Article would hence be achieved by summarizing
the powers of the Chief Justice or his designate under S.11 - his
own jurisdiction, to entertain the request, the existence of a
valid arbitration agreement, the existence or otherwise of a live
claim, the existence of the condition for exercise of his power and
on the qualifications of the arbitrator or arbitrators, and by
believing that it has cleared many a doubt on the subject.

Footnotes

1. The author is an LL.M in Business Laws from the
National Law School of India University, Bangalore and is an
Associate at Vaish Associates.

2. Prior to the promulgation of the 1996 Act the law on
arbitration in India was substantially contained in three
enactments, namely, The Arbitration Act, 1940, the Arbitration
(Protocol and Convention) Act, 1937 and the Foreign Awards
(Recognition and Enforcement) Act, 1961. In the Statement of
Objects and Reasons appended to the Bill it was stated that the
1940 Act, which contained the general law of arbitration, had
become outdated. The said objects and reasons noticed that the
United Nations Commission on international Trade Law (UNCITRAL)
adopted in 1985 the Model Law on International Commercial
Arbitration. The General Assembly had recommended that all
countries give due consideration to the said Model Law which, along
with the rules, was stated to have harmonised concepts on
arbitration and conciliation of different legal systems of the
world and thus contained provisions which were designed for
universal application. The above said Statement of Objects and
Reasons in para 3 states that "Though the said UNCITRAL
Model Law and rules are intended to deal with international
commercial arbitration and conciliation, they could, with
appropriate modifications, serve as a model for legislation on
domestic arbitration and conciliation. The present Bill seeks to
consolidate and amend the law relating to domestic arbitration,
international commercial arbitration, enforcement of foreign
arbitral awards and to define the law relating to conciliation,
taking into account the said UNCITRAL Model Law and
Rules".

3. The Supreme Court in Food Corporation of India v.
Joginderpal, AIR 1989 SC 1263 observed that the law of
arbitration must be `simple, less technical and more
responsible to the actual reality of the situations',
`responsive to the canons of justice and fair
play'.

4. In Guru Nanak Foundations v. Rattan Singh,
AIR 1981 SC 2075, the Supreme Court, while referring to the 1940
Act, observed that "the way in which the proceedings under
the Act are conducted and without an exception challenged in
courts, has made lawyers laugh and legal philosophers weep" in
view of "unending prolixity, at every stage providing a legal
trap to the unwary."

7. S. 11 of the Arbitration and Conciliation Act, 1996.
under ss. (12) (a) clarifies that in relation to International
Arbitration, the reference in the relevant sub-sections to the
'Chief Justice' would mean the 'Chief Justice of
India'. Ss. 12 (b) indicates that otherwise the expression
'Chief Justice' shall be construed as a reference to the
Chief Justice of the High Court within whose local limits the
principal Court is situated. 'Court' is defined under S. 2
(e) as the principal Civil Court of original jurisdiction in a
district.

8. S. 11 (6) of the Arbitration and Conciliation Act,
1996.

9. In the case of SBP Co v. Patel Engineering Ltd
& Anr., (2005) 8 SCC 618 the broad issues which can be
decided by the Chief Justice are "his own jurisdiction, to
entertain the request, the existence of a valid arbitration
agreement, the existence or otherwise of a live claim, the
existence of the condition for exercise of his power and on the
qualifications of the arbitrator or
arbitrators."

10. Anil Kumar v. B.S. Neelkanta, AIR 2010 SC
2715 at para 14 it has been observed that the 'Chief
Justice or his designate has to decide the issues if raised,
regarding: (i) territorial jurisdiction; (ii) existence of
Arbitration Agreement; (iii) Arbitrable
Dispute.'

15. AIR 1999 SC 3246. This was a case pertaining to a
Special Leave Petition under Article 136 of Constitution
of India moved by the petitioner challenging an order of the
learned Chief Justice of the High Court of Bombay under
Section 11 Sub-section (6) of the Arbitration and
Conciliation Act, 1996

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